GOP directs culture war fury toward green investing trend

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Red state officials are coming out swinging against growing Wall Street efforts to consider environmental risk in investment decisions

May 19, 2022, 6: 23 PM

7 min read

SALT LAKE CITY — Republicans are coming out swinging against Wall Street’s growing efforts to consider factors like long-term environmental risk in investment decisions, the latest indication that the GOP is willing to damage its relationship with big business to score culture war points.

Many are focusing on ESG, which stands for environmental social and governance. This is a sustainable investment trend that is sweeping the financial markets. It is criticized by the Red State as politically correct and woke, and they are trying to stop investors from contracting with states from adopting it at any level.

For right wing activists who have previously brought criticisms to critical race theory (CRT), diversity equity and inclusion (DEI), and social emotional learning to the forefront, it’s now the latest acronym-based source for outrage to find a place at rallies as well as in conservative media and in legislatures.

ESG is not yet mainstream political messaging but there is growing backlash against it. In Houston, Mike Pence, the former Vice President, attacked the concept this week. And on Wednesday, the same day he said on Twitter he planned to vote Republican, Elon Musk attacked it after Tesla lost its place on the S&P 500’s ESG Index. He called it a scam “weaponized by phony social justice warriors.”

The concept calls on investors to consider criteria such as environmental risk, pay equity or how transparent companies are in their accounting practices. Aided by recently proposed disclosure requirements and analysis from ratings agencies, they have adopted the principles to such an extent that those who use them control $16.6 trillion in investments held in the U.S.

In response, Republicans — historically known for supporting fewer regulations — are in many places attempting to impose new rules on investors. They show how party members are willing to take a stand against big business in order to fight back against ideological foes.

” I don’t believe we’re the party for big business anymore. We are the party for people, and more specifically, the party for working people. “The problem we have is with big corporations and banks right now trying to dictate our lives,” Riley Moore, West Virginia Treasurer, said.

Opponents criticize ESG as politicized and a potentially costly diversion from purely financial investment principles, while advocates say considering the criteria more accurately accounts for risk and promises steadier returns.

“We don’t focus on sustainability because we’re environmentalists but because we are fiduciaries to clients,” Larry Fink (CEO of investment firm BlackRock) told clients in a letter this past year.

But Moore, along with Marlo Oaks, the Republican state treasurer of Utah, argue that green investment is better than fossil fuels and denies key industries access and capital. They are targeting S&P Global Ratings to add ESG scores on top of their traditional state credit ratings. They fear that if they don’t make changes to their scores, borrowing for projects like roads or schools could become more expensive.

In an April letter, Oaks demanded S&P retract analysis that rated Utah as “moderately negative” in terms of environmental risk due to “long-term challenges regarding water supply, which could remain a constraint for its economy … given pervasive drought conditions in the western U.S.”

The letter was co-signed by the governor, legislative leaders and the state’s congressional delegation, including Sen. Mitt Romney, whose former firm Bain Capital calls ESG factors “strategic, fact-based and diligence-driven.” It said ratings system “attempts to legitimize a dubious and unproven exercise” and attacks the “unreliability and inherently political nature of ESG factors in investment decisions.”

Though he likened ESG to critical race theory, Oaks said he was mostly concerned with capital markets and what he called attempts by fossil fuel opponents to manipulate them by pressuring investors to pick businesses with high ESG scores.

“DEI, CRT, SEL. It can be hard to keep up with the acronyms,” he wrote on an economics blog last month, “but there’s a relatively new one you need to know: ESG.”

Investors making carbon neutral or net zero criteria common were, in effect, Oaks said, limiting access to capital for oil and gas businesses, hurting their returns and potentially contributing to gas price spikes.

Officials in more than a dozen states are denying the notion that fossil fuel-related investments could be more risky over the long-term due to the energy transition. They claim that asset managers who prefer green investments are using state funds to advance their own agendas.

In statehouses anti-green investment efforts are backed conservative groups like the American Legislative Exchange Council or the Heartland Institute. These think-tanks skeptical of scientific consensus about human-caused climate changes have backed bills that either divest the state funds from financial institutions using ESG or prohibit them from using it for scoring individuals or businesses. Texas, West Virginia, and Kentucky have passed bills that require state funds to limit transactions with companies that avoid fossil fuels. Wyoming considered banning “social credit scores” that evaluate businesses using criteria that differ from accounting and other financial metrics, like ESG

After conservative talk show host Glenn Beck visited the Idaho Statehouse and referred to ESG as critical race theory “on steroids,” the Legislature passed a law in March prohibiting investment of state funds in companies that prioritize commitments to ESG over returns. The American Legislative Exchange Council published a model policy that would require banks to manage state pensions to adhere to new regulations. It would limit investments driven by “social, ideological and political” goals.

Although the policy does not mention it explicitly, Jonathan Williams, chief economist of the group, stated that ESG’s mainstreaming within broader trends in political correctness was a driving factor. His research has shown that incorporating other financial metrics can lower the rate at which state pensions are underfunded.

Sustainable investing advocates deny that charge and say considering the risks and realities of climate change amounts to responsible investing.

West Virginia, Arkansas and other states have recently withdrawn their pension funds from BlackRock as a result of the asset manager adding businesses that have a lower carbon footprint to its portfolios. Moore, West Virginia’s treasurer hopes that more will follow.

While the green investment discourse is gaining enthusiasm, it differs from recurring discussions over gender and sexuality and how history should be taught. Both supporters and opponents acknowledged that they were surprised that investment decisions, credit ratings, and pensions have become rally material.

Last month, thousands of Republicans cheered when Senator Mike Lee described green investing in similar terms as critical race theory — another acronym-based foil. Lee stated that “Between ESG and MSNBC we get way too many B.S.”

Bryan McGannon is a lobbyist for US SIF: The Forum for Sustainable and Responsible Investment. He said that opponents were wrong to view sustainable investing trends as political. He said that if states refuse to consider how the future will likely rely less upon fossil fuels and how environmental risk can be managed, it is because they are making decisions with incomplete information.

“If an investor doesn’t see these risks, it could indicate that the government is not a good investment. McGannon stated that ESG is one piece of a large swathe of information. “Investors use a huge swath of information, and ESG is a piece of that mosaic.”

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Associated Press writers Stan Choe in New York and Lindsay Whitehurst in Salt Lake City contributed to this report.


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